Small-cap income: 3 of the best shares to buy for rising dividends

Market minnow stocks don’t have a reputation for being the best shares to buy for income, but Paul Summers would consider these three dividend hikers.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Ask investors to name dividend-paying companies and I suspect they’ll automatically think of the biggest stocks on the market. This is entirely reasonable given the huge yields offered by some FTSE 100 members. Based on my research, however, I think some small-cap stocks could be among the best shares to buy, at least based on their track records of raising payouts. 

Jersey Electric

As its name suggests, market minnow Jersey Electric (LSE: JEL) supplies electricity to approximately 50,000 domestic and commercial customers on the island. Importantly, it’s the only company to do so, making it arguably as defensive as small-cap stocks come. 

As a result of this, Jersey has shown itself to be an extremely consistent dividend raiser (+5% every year).  A total payout of 17.3p per share is expected in FY21. That’s a 2.9% yield; not massive but easily covered by profit.

As one might expect from a solid income payer, however, JEL’s share price performance has been adequate rather than explosive. The stock is up 44% in value since 2016. That’s clearly a whole lot less than other UK shares. So, a danger with JEL is that I wouldn’t get much in the way of capital growth. A valuation of 16 times earnings for a predictable utility stock isn’t exactly cheap either. 

Still, that predictability might suit me down to the ground if income were a priority. If/when markets correct, I can be pretty confident that JEL will recover quickly. That’s exactly what happened last year. 


Small-cap NWF Group (LSE: NWF) describes itself as a “specialist distributor of fuel, food and feed across the UK“. Like Jersey Electric, it’s also a brilliantly regular dividend hiker. This potentially makes it another one of the best shares to buy at this end of the market spectrum.

The company is down to return 7.34p per share to holders in FY22, at least according to analysts. That’s a yield of 3.43% at last Friday’s closing price. Some might say that’s not enough given that shares in minnows can be pretty volatile due to their illiquid nature. Margins are also wafer-thin.

In NWF’s defence, its annual payouts are usually very well covered by profits, making them pretty secure. That’s more than you can say for some far larger stocks these days. On top of this, NWT’s shares aren’t expensive relative to the wider market. I could pick some up today for 12 times forecast earnings. 


Agricultural product manufacturer Wynnstay (LSE: WYN) has shown itself to be admirably predictable when it comes to returning cash to its owners. We’re talking about an average hike of +5%, with the total sum always covered by profits.

A potential 15.2p per share in FY21 would give a yield of 2.7%. That’s the lowest of those mentioned here. However, it’s important to consider the impact of many years of compounding that regular dividends enable.

There are drawbacks, of course. Margins, like those at NWF, are seriously low. And, although performing superbly over the last year (+64%), WYN’s shares are now only back to the level they were in 2016. Like most things in life (and investing), I think balance is key. I would never fill an income-focused portfolio solely with small-cap stocks.

So, while Wynnstay might make a nice addition, I’d aim to reduce volatility by also holding some larger dividend hikers as well. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

The Standard Chartered share price leaps on FY dividend and buyback news. Time to buy?

An 8% jump for a UK-listed bank on 2023 results? That's what just happened to the Standard Chartered share price.…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Can Lloyds shares get any cheaper?

Lloyds shares have fallen further following the release of the bank's 2023 results. This Fool senses now is a time…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£7,000 of money to spare? Here’s how I’d aim to turn that into £1,000 in annual extra income

Christopher Ruane explains how he would aim to generate a four figure income to cushion his future, all with dividend…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is this stellar dividend growth stock the only no-brainer buy on the entire FTSE 100?

Picking shares requires careful thought and analysis, but this FTSE 100 growth stock appears to be pressing all the right…

Read more »

Investing Articles

I bought 422 Glencore shares in July and 232 in September. Here’s what they’re worth now

Glencore shares have had a rough ride leaving Harvey Jones out of pocket. Should he cut his losses or average…

Read more »

Man smiling and working on laptop
Investing Articles

Here’s why I’m investing most of my savings in FTSE 100 shares!

I think investing in FTSE 100 shares is one of the best ways that UK investors can make long-term returns.…

Read more »

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »